Arizona Real Estate License Practice Exam 2025 - Free Real Estate Practice Questions and Study Guide

Compensatory damages are awarded to a party as a direct result of a breach of contract. This type of damage is intended to compensate the injured party for the actual loss suffered because the other party failed to fulfill their contractual obligations. The goal is to make the injured party "whole" again, to the extent that is possible, by covering the financial losses associated with the breach.

These damages are typically calculated based on the specific losses incurred due to the breach, which may include lost profits, costs incurred, and other direct expenses linked to the contract. In contrast, other types of damages serve different purposes: collateral damages may cover indirect losses related to the breach, liquidated damages are pre-determined amounts agreed upon in a contract as a penalty for non-performance, and punitive damages are intended to punish wrongful actions and deter future misconduct rather than to compensate the injured party for their actual losses. Thus, compensatory damages specifically address the loss that arises directly from the breach, making them the correct answer in this context.